The Australian dollar closed 0.5% lower versus the US dollar in the previous session; the third straight day of losses. Today the Aussie dollar is rebounding versus the greenback and is trading 0.1% higher at US$0.6827.
The Australian dollar moved lower across recent session as investors grew concerned over the health of the Australian economy. Earlier in the week data showed that the Australian composite pmi figure slipped to just 50.1. The level 50 separates expansion from contraction.
The weak data comes following comments from the International Monetary Fund (IMF) which predicted that Australia’s GDP will slow by more than most industrial economies this year and next year.
The Reserve Bank of Australia have already cut interest rates three times this year to record lows, in an attempt to shore up the economy. However, the RBA is more confident than the IMF that the Australian economy is starting to slowly turn a corner.
Trade headlines have been few and far between this week. In the absence of high impacting data Aussie dollar investors will be watching any US — China trade talk headlines closely. This is because China is Australia’s largest trading partner. The two economies are closely tied. Therefore, a trade deal would also benefit the Australian economy and therefore the Australian dollar.
US Consumer Confidence Up Next
The dollar gained ground in the previous session following better than expected US manufacturing figures. A gauge of factory activity unexpectedly increased in October, rebounding for the second straight month. The data has offered investors hope that the US manufacturing sector I s stabilising after experiencing a steep slow down across recent months. The manufacturing sector has been hit by slowing global growth and demand aid on the ongoing US — China trade dispute.
Today investors will look towards the release of US consumer confidence figures. So far, the US consumer has proved to be resilient, whilst the manufacturing sector slumped. Analysts expect consumer confidence to remain steady in October. Any sign that it is declining could unnerve investors and send the dollar southward. This is because the US economy is very dependent on consumers spending. Confident consumers spend; consumer worried about the outlook don’t.
| Why does poor economic data drag on a country’s currency? |
| Slowing economic indicators point to a slowing economy. Weak economies have weaker currencies because institutions look to reduce investments in countries where growth prospects are low and then transfer money to countries with higher growth prospects. These institutions sell out of their investment and the local currency, thus increasing supply of the currency and pushing down the money’s worth. So, when a country or region has poor economic news, the value of the currency tends to fall. |
| What do these figures mean? |
| When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.
For example, it could be written: 1 USD = 0.6784 AUD Here, $1 is equivalent to approximately A$0.67. This specifically measures the US dollar’s worth against the Australian dollar. If the Aussie dollar amount increases in this pairing, it’s positive for the US dollar. Or, if you were looking at it the other way around: 1 AUD = 1.4739 USD In this example, A$1 is equivalent to approximately $1.47. This measures the Australian dollar’s worth versus the US Dollar. If the US dollar number gets larger, it’s good news for the Aussie dollar. |
